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Shortfall: Family Secrets, Financial Collapse, and a Hidden History of American Banking

Author(s):Echols, Alice
Reviewer(s):Mason, David

Published by EH.Net (January 2018)

Alice Echols, Shortfall: Family Secrets, Financial Collapse, and a Hidden History of American Banking. New York: New Press, 2017. xxx + 303 pp. $27 (hardcover), ISBN: 978-1-62097-303-5.

Reviewed for EH.Net by David Mason, Department of History, Georgia Gwinnett College.

Alice Echols (professor of history at the University of Southern California), whose previous works include a history of disco and a biography of Janis Joplin, has written a case study of how greed and corruption caused the failure of a building and loan (B&L) during the Great Depression. The story told is personal (the perpetrator of the fraud was her maternal grandfather), the source material (a trove of letters and other documents) is unique, and the writing style is such that it is hard to stop reading.

Had Echols framed this as an example of an under-reported side of the financial crisis of the 1930s that deserves further study, Shortfall would be a useful addition to the scholarship. Instead, she follows a different path that seeks to recast the history of the B&L industry during the Great Depression, and through it take aim at “a larger cultural narrative … that capitalism is redeemable” (p. 241). Her efforts to show that B&Ls were populated by fraudsters and not the kindly bankers cast in the mold of George Bailey from the movie It’s a Wonderful Life are not entirely convincing, primarily because she does not adequately show how this one well-researched study is representative of the entire industry.

This is not to say that the story involved is not fascinating. It centers on Echols’ grandfather, Walter Davis, whose desire to climb the social ladder in Colorado Springs, Colorado led to him to acquire the City Savings Building and Loan Association (CSB&LA). Davis quickly grew the institution onto one of the largest in the region, and by the onset of the Great Depression he had achieved both the financial success and status he craved. Davis’s life, however, was far from idyllic. Not only was he engaged in an extra-marital affair, but he was embezzling from his businesses to support his lavish lifestyle. As the hardships of the Depression threatened to expose his criminal acts, Davis fled to New York City where he lived for months on the lam as a wanted man. He was eventually arrested, but committed suicide before he could be extradited for trial in Colorado.

Given that fraud was the main reason for the failure of the CBS&LA and at least two other B&Ls in Colorado Springs, the events described by Echols provide the foundation for a strong case study. This potential, however, goes unrealized because there are very limited efforts to place this case in a broader context. While she does an excellent job describing social and political conditions in the West (and Colorado Springs in particular), it is hard to tell how the Colorado B&L industry and its regulatory environment compare to other states. Another missed opportunity could have been an examination of the operating structures of these associations which might uncover weaknesses that would make some B&Ls more susceptible to fraud than others.

Instead Echols is more intent on bringing to light the “untold story” of fraud that existing B&L histories have missed. These histories (my own included) are considered suspect because they rely too heavily on industry-insider accounts or fail to adequately emphasize “flat-out financial wrongdoing” (p. 250). While few would deny the existence of fraud in the 1930s, the real issue is how prevalent was this problem. Echols believes it was endemic, claiming that “among building and loan men of that period Walter Davis was hardy anomalous” (p. xiv) and Shortfall does make reference to just under twenty failures that were, or could have been, tied to fraud between 1929 and 1939. Given that more than 4,300 B&Ls went out of business during that same period, the more plausible explanations for why the industry declined are also the more mundane — lenders underestimated risk, borrowers defaulted on loans, and banks quickly exhausted their reserves in this anomalous period.

Among the other concerns with Shortfall are that it portrays all personal finance lenders as being alike (it is alleged that it was not uncommon for loan sharks to form a B&L to provide a more reputable cover for their businesses), that the B&Ls in Colorado Springs were doomed to fail (even though there are no references to the financial statements for the CSB&LA or any of the other associations), and the use of spare evidence to support sweeping statements (the claim that well into the 1950s B&Ls were increasingly run as “honey pots in order to line their own pockets” is based on a one-paragraph New York Times Letter to the Editor).

It is unfortunate that Echols does not provide a more balanced and nuanced analysis of the activities at CSB&LA, since the building and loan industry remains an underexamined field and one that would benefit from new scholarship. While Echols is correct to challenge existing scholarship, her effort to portray the B&L industry as a seedbed of corruption is not entirely convincing. While it is certainly true that all building and loan men were not like George Bailey, it is equally true they weren’t all like Bernie Madoff as Shortfall would have you believe.

David Mason’s recent publications include “The Rise and Fall of the Cooperative Spirit: The Evolution of Organizational Structures in American Thrifts, 1831-1939,” Business History (2012).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII